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The past few months have underlined the need for better business insight to reduce risk, improve decision making and exploit new opportunities. Businesses have needed rapid access to advice, support and information – yet in too many cases the obvious ‘go to’ resource has failed.
Accounting firms with a compliance only approach have been unable to step up and support businesses that need more than the basics of profit & loss; balance sheets; and cash flow. What they require is business support, from using corporate structure to mitigate risk to undertaking robust forecasting to inform investment plans and helping to maximise business value for a company looking to sell.
From providing essential advice to protect business assets - such as property - to R&D tax incentives and VAT consultancy, whether a business requires a fully outsourced FD or support for the existing management team, Peter Bracey, MD, Bracey’s Accountants, outlines the opportunity for progressive accountants to support constantly changing business.
Whether a winner or loser during the Covid-19 crisis, businesses across every industry have had to adapt to extraordinary change. Gyms were shut but companies selling gym equipment, bikes and paddleboards couldn’t keep pace with demand. Garden centres and nurseries were trying to keep alive tonnes of bedding plants – while seeds sold out online and everyone bought a greenhouse.
For some business owners the focus was on managing job retention schemes and accessing the life-line of government finance – but now they are worrying about the repayments of deferred VAT and government loans that will be due early in 2021; about closing premises or making redundancies. For others, the challenge was in responding to customer demand for home delivery; working out new finance models and overcoming supply chain glitches. Now they are looking to build on new customer relationships and embed expansion plans.
At every step, these businesses have needed advice, support and insight. But this was uncharted territory. Forecasting is tough at the best of times. Little if any of the business’ activity pre-Covid appeared to offer any relevance during the past six months. So where could businesses turn for help?
These are decisions that require not only excellent financial and business understanding, but also excellent financial and business data. Which is where many traditional accountancy firms fall down. The majority have, of course, made the shift to cloud based software which provides shared, real-time access to business data. As yet, however, many remain committed to a service model that is predicated solely on meeting compliance requirements, not supporting critical business decisions.
Proactive firms are taking a very different approach, one that takes a business first rather than compliance only approach. Rather than attempting to mitigate risks and reduce tax liabilities after the fact, this model is about constant communication with clients to support change. By encouraging businesses to discuss plans in advance, accountants can provide vital support and insight – either working with the existing CFO or FD or providing an outsourced FD resource to those companies that cannot justify this dedicated role.
These firms are looking beyond annual accounts data to provide business insight and advice based on current, not historic – and now irrelevant, financial data. Whether the business is worrying about repaying its deferred VAT and Bounce Back loans next year, searching to minimise risk or building on new customer awareness to add revenue streams, there is a pressing need to understand the business as well as financial implications of change.
Today, that means supporting companies through a line by line approach to every item on the balance sheet. From cutting costs and chasing debts without jeopardising important business relationships; to identifying and funding new revenue streams - even creating local supply chains to mitigate the potential disruptions caused by Brexit - understanding, analysing and interpreting this data is key to making the right decisions today to support immediate goals.
But what about tomorrow? Covid-19 may have been a once in a century event but the pace of change affecting business in a digitally disrupted global economy demands this continuous level of proactive support. Few business owners or management teams have the time, resources or expertise to unravel the complexities of 21st century operations – and can become exposed to significant risk as a result.
Is it worth developing talent in house or more effective to recruit? Does the government’s latest apprenticeship scheme really work financially? What about tax incentives – such as R&D tax credits or the potential to cut corporation tax for sales of patented goods? How can the business safeguard its intellectual property?
Providing the right answers to these questions is about far more than the mainstays of accountancy: the P&L and balance sheet. It is about leveraging business understanding and knowledge to support clients through every change; about helping companies to take every possible step to build a strong foundation, maximise tax incentives, minimise risk and realise business goals.
Take the retailer that has spent 50 years building up not only a successful customer base but also a valuable property portfolio and cash reserves. At first glance, a robust business. But the company structure revealed a significant risk: the entire operation was held within one limited company. There was no separation of assets. Should the business be accused of copying a product and face a legal claim, the entire company’s assets would be at risk. The simple step of creating a group structure and transferring some of the assets to a holding company draws a line in the sand and limits a creditor’s ability to attack the entire corporate asset holding.
Or consider the business that was investing circa £1million year on year in a new software product – yet had no idea that it could claim R&D tax credits and was due a £500,000 rebate. Or the businesses that have never considered applying for a patent on a product because of the up-front costs – and are, as a result, missing out on the long term financial benefits of patent tax relief. Any company with a patent pending can apply for Patent Box relief which can reduce corporation tax on the profit generated from the part of the product that is patented from 19% to 10%.